Irving Kahn: 105-Year-Old Investor’s Top Positions in Q2

Irving Kahn, along with his brothers Alan and Thomas, founded Kahn Brothers & Company Inc. in 1978. At 105 years of age, Kahn still goes to the office every day to be involved in the management of the firm’s $800 million in assets. As a follower of Ben Graham, he evaluates stocks from the bottom up, buying undervalued stocks that are typically also out of favor.

His primary criteria are assets, operating performance and long-term fundamental business prospects. His portfolio is 35% financials and 24.4% heath care. His top holdings as of June 30, 2011, are: New York Community Bancorp Inc. (NYB), Pfizer (NYSE:PFE), Merck & Co. Inc. (NYSE:MRK) and BristolMyers Squibb Co. (NYSE:BMY).

New York Community Bancorp, Inc. is a producer of multi-family loans in New York City, with an emphasis on apartment buildings that feature below-market rents. New York Community Bancorp Inc. has a market cap of $5.49 billion; its shares were traded at around $12.96 with a P/E ratio of 9.9 and P/S ratio of 2.5. The dividend yield of New York Community Bancorp Inc. stocks is 7.9%. New York Community Bancorp Inc. had an annual average earnings growth of 3.5% over the past 10 years.

New York City Bancorp has generated consistent positive free cash flow from 2004 to 2009, even through the financial meltdown of 2008. In 2010 however it took a loss of $115 million, down from $204 million in 2009. Revenue was at a record high of $2.3 billion, and earnings per share rose for the third consecutive year to $1.24 per share.

New York City Bancorp has $40.6 billion in assets, making it the 21st largest bank holding company in the nation. From November 1993 to June 2011, the bank has provided investors a return on investment of 3,127%. Its assets consist of 1.76% non-performing non-covered loans (non-accrual loans and loans 90 days or more past due but still accruing interest). The company declared its 30th consecutive quarterly cash dividend of 25 cents per share in July 2011.

Irving Kahn has owned this stock since before the second quarter of 2006. In the second quarter 2010 he owned 4,067,917 shares at an average price of $15.52. He has been selling incrementally as the stock price has risen. He last sold 18,323 in the second quarter 2011 and now owns 3,687,066, making it 9.7% of his portfolio.

Pfizer Inc is a research-based, global pharmaceutical company that discovers and develops innovative, value-added products that improve the quality of life of people around the world and help them enjoy longer, healthier, and more productive lives. Pfizer Inc. has a market cap of $146.5 billion; its shares were traded at around $18.49 with a P/E ratio of 8.4 and P/S ratio of 2.1. The dividend yield of Pfizer Inc. stocks is 4.4%. Pfizer Inc. had an annual average earnings growth of 1.2% over the past 10 years.

Pfizer has generated robust cash flow over the last ten years, though it has fallen off in the last three years from $16.5 billion in 2009 to $9.9 billion in 2010. Its revenue from biopharmaceutical products slipped to $2.6 billion in the period ended July 3, 2011, from $2.8 billion in the same period 2010.

Pfizer, like many drug companies, is facing slumping sales due to an onslaught of new generic versions of its branded drugs going off of patent. It loses its patent for Lipitor in May 2012 and is already involved in legal action with at least five companies who have filed with the FDA for approval of generic versions. Its patents for Viagra, Sutent, Detrol and Detrol LA will all expire in 2012, and many others in the next five years.

Pfizer has 103 projects in its pipeline as of August 11, 2011, and discontinued 14 since May 12. The company says it is going to focus its research and development on areas with the greatest scientific and commercial promise: immunology and inflammation, oncology, cardiovascular and metabolic diseases, neuroscience and pain, and vaccines.

Kahn’s Pfizer holding predates the second quarter 2006. He sold out in the first quarter of 2007 though, and re-established a position of 1,438,531 shares in the second quarter of 2007 at an average price of $26.61. Since the second quarter of 2006, he has purchased 3,020,416 shares and sold only 386,376. In the second quarter he bought 649 shares at an average price of $20.59.

Merck & Co. Inc. is a global research-driven pharmaceutical company dedicated to putting patients first. Merck & Co. Inc. has a market cap of $99.83 billion; its shares were traded at around $32.2 with a P/E ratio of 9 and P/S ratio of 2.2. The dividend yield of Merck & Co. Inc. stocks is 4.7%.

GuruFocus Writer DD Hennessy in June called Merck, along with Abbott Laboratories, examples of drug companies that still have wide economic moats and are trading at discounts to their intrinsic values. “Based upon their pipelines, emerging market exposure and diversification strategies, I believe that both are positioned to sustain their competitive advantage for the long term,” he said.

Merck’s revenues increased 16% to €2.5 billion in the second quarter over the year-ago quarter, helped by their acquisition of the Millipore Corporation, a life science company, in July 2010. Sixty-three percent of the company’s revenues came from pharmaceuticals, and 37% from chemicals. Merck is increasing its focus on chemicals. It raised research and development spending 9.9% to €369 million in the second quarter mainly for its chemical divisions.

In its mid-year report, Merck discussed the future of pharmaceutical:, “IMS Health, the world’s leading provider of market intelligence for the pharmaceutical and healthcare industries, predicted in its most recent report (May 18, 2011) that global spending for medicines would slow to a compound annual growth rate of 3% to 6% over the next five years. This compares with a 6.2% annual growth over the past five years. Lower levels of spending growth for medicines in the U.S., the ongoing impact of patent expiries in developed markets, continuing strong demand in emerging markets, and policy-driven changes in several countries are among the key factors that will influence future growth, according to IMS Health.”

Merck is another long-term holding of Kahn’s – it also predates the second quarter of 2006. He also sold out of his position in the first quarter of 2007 and re-entered in the second quarter of 2007 when the stock went up about $6 to $57.03. Since then he has bought and sold many times. In the first quarter of 2011, his last trade, he sold 8,024 shares at an average price of $35.47.

Bristol-Myers Squibb Company is a global leader in the research and development of innovative lifesaving and life-enhancing treatments for heart disease; high blood pressure; stroke; diabetes; cancer; HIV/AIDS and other infectious diseases; depression, schizophrenia and other mental disorders; pain; and other conditions. Bristolmyers Squibb Co. has a market cap of $48.94 billion; its shares were traded at around $28.51 with a P/E ratio of 13.1 and P/S ratio of 2.5. The dividend yield of Bristolmyers Squibb Co. stocks is 4.7%. Bristolmyers Squibb Co. had an annual average earnings growth of 15% over the past 5 years.

For the last decade, Bristol-Myers has had outstanding and growing free cash flow. It increased to $4.1 billion in 2010 from $3.9 billion in 2009, which helps explain its 5.29% stock price increase year to date. Over the last five years the stock went up over 28%. Its book value per share is at a 10-year peak of $9.14, though its return on equity fell precipitously from 71% in 2009 to 19.8% in 2010, and its return on assets fell from 32.8% to 7.9%.

The company’s sales jumped to $95 million in the second quarter which far exceeded analysts’ expectations. The spike was mainly due to the company’s new melanoma drug Yervoy, which costs $120,000 for a full course of treatment.

Kahn owned Bristol-Myers before the second quarter of 2006. He bought when the price was low in 2009 and has been selling at a profit in 2010 and 2011.

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